Loaning money is a central processing the banking industry. The process banks follow when making a decision as to whether or not to loan money to an entity or individual is often related to a credit score. In a typical scenario, a bank scores the applicant and compares that score to some pre-determined cutoff score. The cutoff score is determined for each type of credit offered by the bank. The applicant's score is determined by several factors depending on the type of credit requested.
The credit scoring process results in a number (in practice, an integer) that represents the credit worthiness of an account based on the credit history of the applicant. The cutoff score is chosen with the help of a credit scorecard (in chart or table form) that is developed using a broad range of data about “pass” rates and “bad” rates for a particular type of loan. The credit scorecard and data may be specific to the financial institution involved, or the credit scorecard and data may be generic and use industry-wide data.
One use of a credit scorecard involves reviewing a list of scores in sequence, an estimation of what percentage of applicants will have scores above that score (pass rate), and an estimation of what percentage of the loans to applicants with scores above that cutoff score will go delinquent sometime during the life of the loan (bad rate). A portion of a hypothetical scorecard 100 is illustrated in FIG. 1. The central rows of the scorecard are omitted for clarity. Column 102 shows the scores, column 104 shows the number of applications in the sample on which the scorecard is based that fall into the score range identified by the score, column 106 shows the cumulative number, and column 108 shows the cumulative percentage (pass rate). Columns 110, 112, and 114 show the percent bad rate, number of bad applications, and cumulative percentage of bad applications (bad rate) for a score, respectively. Note that the first row includes all scores below a particular score, which has been identified as the lowest score the bank is interested in with respect to potential loan candidates. The general format, use, and meaning of credit scores and credit scorecards are well understood by individuals in the financial loan industry.
With respect to an individual's credit score, financial institutions can use a score assigned by a credit bureau or credit-reporting agency. However, sophisticated loan companies and banks often find it advantageous to develop their own custom credit scores, which are arrived at by taking into account information which the particular financial institution has found to have bearing on the creditworthiness of customers in their particular market or business environment for a given type of loan. This information may include what is known in the industry as “masterfile” data, which can include summary information about a customer's relationship with the financial institution. In such a case, a bank or other financial institution can calculate scores themselves, or provide information to an outside contractor for use in calculating and supplying custom scores. As an example, Total System Services, Inc., or “TSYS” of Columbus, Ga., U.S.A., provides custom scoring services to banks via their SCOREadvantage™ product, typically using information supplied by the contracting financial institution, and in a manner specified by the financial institution.